5. There are four possible states of the world: severe recession with a probability of 15%,...

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5. There are four possible states of the world: severe recession with a probability of 15%, slow growth with a probability of 25%, recovery with a probability of 40%, and boom with a probability of 20%. Big Maui, Inc. stock will have a return of -3.5% in the severe recession state, 3% in the slow growth state, 8% in the recovery state, and 10% in the boom state. a. What is the expected return on this stock? b. What is the standard deviation of the expected return on this stock? 5. There are four possible states of the world: severe recession with a probability of 15%, slow growth with a probability of 25%, recovery with a probability of 40%, and boom with a probability of 20%. Big Maui, Inc. stock will have a return of -3.5% in the severe recession state, 3% in the slow growth state, 8% in the recovery state, and 10% in the boom state. a. What is the expected return on this stock? b. What is the standard deviation of the expected return on this stock?

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